The Unassuming Economist

A new IMF paper by Frederic Lambert and Hyunmin Park  highlights the role played by social spending to reduce poverty and inequality:

“We analyze microdata from Mexico’s survey on household income and expenditures (ENIGH) to study the evolution of income inequality in Mexico over 2004-16, identify its sources, and investigate how it was affected by government social policy. We find evidence of only a small decline in inequality over this period. The observed decline may be attributed to government transfers, notably targeted cash transfers (Prospera) and non-contributory pensions. In 2016, those two programs accounted for more than two thirds of the reduction in the Gini coefficient due to government transfers. Other transfer programs such as farmland subsidies (Proagro), government scholarships, and non-monetary transfers for medical expenditures have not been as effective.”

From an IMF working paper by Benedicte Baduel; Carolin Geginat; and Gaëlle Pierre:

“This paper examines the extent to which firms in selected MENA countries reported being constrained by the business environment around the time of the Arab Spring and the extent to which these constraints affected their employment performance. The results suggest that small firms in MENA faced more structural constraints than similar firms in other regions. We also find that MENA firms’ weaker job creation can be explained in great part by the macroeconomic environment and structural constraints. Low GDP growth, falling external competitiveness, corruption, lack of access to finance and poor access to electricity are found to explain a significant part of the lack of employment growth in MENA firms compared to their peers.”

From the OECD:

“Launched in May 2015, OECD Secretary-General Angel Gurría’s ‘21 for 21’ proposal called for consolidation and further transformation of the OECD by ‘redefining the growth narrative to put the well-being of people at the centre of our efforts.’

To contribute to this debate, in 2018 the Secretary-General commissioned an Advisory Group on a New Growth Narrative to examine how economic, social and environmental considerations could be integrated in a coherent approach. Acting in a personal capacity, the Advisory Group comprises Andy Haldane, Michael Jacobs, Nora Lustig, Mariana Mazzucato, Robert Skidelsky, Dennis Snower and Roberto Unger.1 The Group has sought to bring together in a single, short and readable document the various strands of new economic thinking curated over recent years by the New Approaches to Economic Challenges (NAEC) initiative. Beyond Growth: Towards a New Economic Approach is their draft report.

The report was written and coordinated by Michael Jacobs, with research assistance by Merve Sancak at the Sheffield Political Economy Research Institute. The project has been overseen by the OECD Chief of Staff and Sherpa, Gabriela Ramos, who has responsibility for NAEC in the OECD Secretariat, with the support of William Hynes.

The report attempts to synthesise a wide range of reflection on new ways of thinking about economic policymaking. It encompasses a new set of goals and measures of economic progress; new frameworks of economic analysis; and new approaches to policy.

While reactions from OECD members are strongly welcomed, this is not an OECD report requiring approval. Nor is it exhaustive in the content covered. Focusing on the challenges facing OECD countries, it builds on New Approaches to Economic Challenges: Towards a New Narrative presented at OECD Week in 2017 and Elements of a New Growth Narrative (SG/NAEC(2018)1) discussed at the NAEC Group meeting in September 2018 marking 10 years after the collapse of Lehman Brothers.

The objective of this draft document is to receive feedback and comments from the different OECD Policy Committees and Members that will participate in the NAEC Group meeting of 17-18 September, and to continue the dialogue with NAEC partners and thinkers outside the OECD.

The opinions expressed and the arguments employed herein do not necessarily reflect the official views of OECD member countries, nor any institution with which the contributors may be affiliated.”

Continue reading here.

Interesting new research in this IMF WP by Niels-Jakob H Hansen and Albe Gjonbalaj:

“Over the last two decades, Cambodia’s consumption inequality and poverty have declined. However, income inequality is higher, and large gaps remain between urban and rural residents. At the same time, domestic revenue mobilization has improved substantially, but collection of tax revenue is biased towards non-progressive sources. We use the model to evaluate the growth and inequality impact of reforms that increase infrastructure spending by raising (i) VAT, (ii) property tax, or (iii) personal income tax. We find that using property taxes delivers the largest increase in GDP and reduction in inequality. Reaping the gains from property taxation will however require additional investments in tax administration”

From a new IMF working paper by Natalija Novta and Evgenia Pugacheva:

“We examine the extent to which declining manufacturing employment may have contributed to increasing inequality in advanced economies. This contribution is typically small, except in the United States. We explore two possible explanations: the high initial manufacturing wage premium and the high level of income inequality. The manufacturing wage premium declined between the 1980s and the 2000s in the United States, but it does not explain the contemporaneous rise in inequality. Instead, high income inequality played a large role. This is because manufacturing job loss typically implies a move to the service sector, for which the worker is not skilled at first and accepts a low-skill wage. On average, the associated wage cut increases with the overall level of income inequality in the country, conditional on moving down in the wage distribution. Based on a stylized scenario, we calculate that the movement of workers to low-skill service sector jobs can account for about a quarter of the increase in inequality between the 1980s and the 2000s in the United States. Had the U.S. income distribution been more equal, only about one tenth of the actual increase in inequality could have been attributed to the loss of manufacturing jobs, according to our simulations.”